Price elasticity of demand for potatoes.

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Potato exam question

  1. (i) The price elasticity of demand is a measure of how responsive demand for a product is to the changes in its price.  From the passage it is suggested that the PED for potatoes is inelastic, meaning that consumers are not very responsive to price change in potatoes.

“The price to us this year is 2p a pound but the housewife is still paying 10, 12 or even 15p a pound.”

This means that if the PED value was calculated the figure would be less than 1, as the percentage change in price would be greater than percentage change in demand, which means that consumers are insensitive to price change in necessity goods.  If a PED curve were to be drawn it would be steep.

(ii) The price elasticity of supply is a measure of how responsive supply for a product is to the changes in its price.  From the passage it is suggested that the PES for potatoes is inelastic, meaning that suppliers are not very responsive to price change in potatoes.  This means that if the PES value was calculated the figure would be less than 1, as the percentage change in price would be greater than percentage change in supply, which means that suppliers are insensitive to price change in necessity goods.  This is because the suppliers which in this case are farmers, do not have a lot of influence on supply as if the price goes up it is hard for them to supply less and if the price goes down it is hard for them to supply more necessity goods such as potatoes, so supply is vulnerable.  If a PES curve were to be drawn it would be steep.

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(b)

Large-scale buying of the surplus by the board has prevented prices from collapsing for the following.  As suggested from the data, there has evidently been a good harvest as farmers are able to supply more wheat.

QUOTE-“Farmers have offered to sell more than 400,00 tons….”

Hence this causes an outward shift in supply from S to S2 and theoretically the price of wheat should collapse as a surplus in supply should mean that to allow demand to increase and supply to decrease, to allow the surplus to be eradicated, the price of potatoes must fall.  However the reason ...

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